We’re still reading through the report, but we couldn’t help
but notice that there’s an entire section dedicated to the regulation of
over-the-counter (OTC) derivatives written by Professor Michael Greenberger,
the former Director of Trading and Markets at the Commodities Futures Trading
Commission (CFTC) under Brooksley Born.
Over the past few months, POGO
has been raising concerns about some potential loopholes in Congress’s
legislation to overhaul the regulation of OTC derivatives, including one that
would create an “alternative swap execution facility” with much weaker
requirements for transparency and disclosure.

Which is why we were pleased to see Professor Greenberger
highlight this provision as one of three “deregulatory measures” that “crept
into the House bill.” Here’s his take on it:

Swaps Execution Facility. First, while the bill continues to
require that swaps not otherwise exempt must be exchange traded, at the behest
of Wall Streetlobbyists, the exchange
trading requirement can be satisfied by placement of a privately executed swap
on a “swaps execution facility,” which includes electronic trade execution or
voice brokerage. While the electronic trade must be conducted by an entity “not
controlled” by the counterparties, if the “SEF will not list the contract, it
does not have to be executed.” In other words, the swap does not need to be
exchange traded if it is submitted to a swaps execution facility that will not
trade the swap. Pursuant to vigorous Wall Street lobbying, this SEF (introduced
in House Agriculture Committee mark up) appears to undercut completely the
bill’s and the Obama Administration’s exchange trading requirement. The
provision for the SEF must be removed from any bill addressing the regulation
of derivatives and swaps.

We hope the Senate keeps this recommendation in mind as it
puts the finishing touches on its version of the bill. Click
here to read the rest of the report (the section on derivatives starts on
page 99).